Reorganizations

May 08, 2013

The new purchasers of the right to manufacture
Twinkies and other former Hostess classics have announced that the replacement
products should be on your grocers’ shelves this July.

After a joint purchase by investment groups Apollo
Global Management and Metropoulos, the new owners have heard the cries of the
public and have announced that production of former Hostess favorites,
including Twinkies, Ding Dongs, Ho Hos, Suzy Qs, Mini Muffins, and Hostess Cup
Cakes, will soon begin at four of the former Hostess bakeries located in
Columbus, GA, Schiller Park, PA, Indianapolis, IL, and Emporia, KN.

The investment partners paid $410 million for the
bakeries and the right to again produce the consumer favorites. The sale was
the result of the liquidation of the assets of the former Hostess Brands, Inc’s
by a bankruptcy liquidation sale.

According to a Wall Street Journal report, the new
owners plan to reopen up to five of the former bakeries, invest an additional
$60 million into the new business, and also plan to hire 1,500 workers to run
the plants. Many of the new hires may be former union employees, who were
encouraged to reapply for their former jobs, but which will be strictly
non-union positions.

While the new owners claim that they will pay the
new hires competitive wages and benefits, we can only assume that the former
labor union of the Hostess workers, the Bakery, Confectionary, Tobacco &
Grain Millers International Union, will not be among those cheering on the new
company and its employees.

Prior to Hostess closing its plants, it had eleven
bakeries and about 18,000 employees. Hostess went through two different
bankruptcy proceedings before it eventually failed to make a deal with its
unions, and then it went into a liquidation proceeding.

For the sake of sugar addicts everywhere, let’s
hope that the new company can be more competitive and successful than Hostess
was. After all, how could America survive without Twinkies and Hostess Cup
Cakes?

October 06, 2011

WILBRAHAM, Mass. (WGGB) -- The rumors of recent days have proven true: Friendly Ice Cream Corp. filed for Chapter 11 reorganization early Wednesday morning, taking with it 63 of the chain's 487 restaurant locations, which closed overnight. The company hopes to absorb as many of the roughly 1200 displaced at surviving stores.

The bankruptcy filing includes a host of motions. Chief among them, says business attorney Michael Katz of Bacon Wilson P.C. in Springfield, is a motion to approve Debtor In Possession financing, essentially allowing the company to borrow $70 million - despite its existing unpaid obligations - to combine with ongoing cash revenues to continue operations.

Another motion would allow the company to pay employees any salaries currently in arrears. Katz says, "I believe wages are all current. I don't think there's been any missed pay periods, and if the court allows this motion so that people are paid for last week, then basically the only risk [employees] take is week-to-week, and if anybody doesn't get their salary I'm sure the bankruptcy court's going to be notified immediately, and they would probably shut the company down."

Furthermore, in the worst-case scenario, Katz says although the Pension Benefit Guaranty Corporation is listed among the top-20 creditors, employees' retirement accounts are safe.

But any doomsday hypothetical, he says, is not to arouse panic. Friendly's CEO Harsha Agadi echoes the sentiment. "Contrary to any opinions that might be floating there, we are stable. It's business as usual." In fact, the only thing unusual, says Agadi, is that Friendly's just enjoyed the best September in its 76-year history. So, why the bankruptcy?

"There's a severe downturn in the economy, but in addition to that, we've had an escalation of commodity costs, specifically dairy," says Agadi.

Katz adds, "...Many people feel [Friendly's] lost its focus, and they introduced dishes with seafood and basically anything - Mexican, and people sort of feel it lost its identity."

An identity that thrived on burgers, hot dogs, fries, and ice cream products. Especially ice cream products. Given that dairy has been among the most inflated commodities, perhaps the crisis shouldn't be that big a surprise.

Not that that's any consolation to unsecured creditors - among them Garelick Farms, Coca-Cola, and Heinz - which likely won't see their receivables ever paid in full.

Another key portion of the company's reorganization strategy is getting approval to abandon unexpired leases at some its store locations, part and parcel with the aforementioned trimming of retail outlets.

If management makes all the right moves, says Katz, there's no reason to bid the Fribble farewell.

"While we're all going to wave the pom-poms and be the cheerleaders, ultimately they have to score the touchdown. That's what we're going to do, we're going to watch."

James Vinick of Moors & Cabot Investments in Springfield agrees.

"It's a sad day emotionally for a lot of people because of the bankruptcy filing, but I see something positive coming out of it. I see the fact that the company will be much more financially stable - that's number one - number two, employees will continue to be employed."

Vinick goes on to say, "I truly believe that, down the road, Friendly's will probably have more, larger stores, once they become financially solvent".

September 17, 2008

In these days of economic distress, the statistics show an ever increasing number of business failures with the prognosis for business bankruptcies reaching ever increasing proportions. These are not easy times to succeed in business. Such is the reality of the economic times.

All too often we hear clients say, "I have to file Bankruptcy."

The decision to file "bankruptcy" is a legal as much as a business decision and should not be made by a client without a thorough discussion with counsel and consultation with an accountant. One does not visit a doctor and say, "I need brain surgery because I have a headache." Neither should the existence of financial difficulties dictate the cure.

The first issue to be determined in the event of financial problems is whether the business, with certain changes, could survive and be profitable. Is management or the owner willing to make the requisite changes and pursue the mechanism to effectuate the changes? Is it worth the cost in time and money? Is it too late? These are difficult decisions.

If the business is beyond salvation, and termination is required, additional decisions must be made.

What are the potential personal consequences?

What is the best way to maximize recovery?

What is the appropriate timing?

What is the best devise to use to effectuate the established goal?

While the act of filing bankruptcy, a Chapter 7, 11 or even 13 is one possible solution to resolving financial difficulties, there are other, more sophisticated ways to terminate the operation of a business that should be thoroughly considered before embarking on what could well be an ill-conceived decision.

Issues of potential personal liabilities must be expressed and carefully examined. The timing of any action may be critical in dealing with legal issues and the maximizing or recovery.

Properly orchestrated termination of the operation of a business need not be destructive of the personal and financial interests of the individual. Experienced insolvency counsel is equipped to recommend alternative procedures to minimize the adverse affects of bankruptcy. Alternatives to a filing can be:

An Assignment for the Benefit of Creditors

A Trust Mortgage

A negotiated voluntary surrender of collateral to the secured creditor

Or even an old fashioned work out

A careful, analytical evaluation of the specifics of the situation, whether a reorganization or a liquidation, can be a win-win situation for all parties, rather than an acrimonious process in which everyone loses.

Everyone is better off when experienced, knowledgeable professionals are involved.